In May 2025, U.S. business activity saw a notable increase as companies accelerated purchasing to get ahead of anticipated tariff hikes. According to analysts at S&P Global Market Intelligence, input inventories surged to an 18-year high, as firms moved swiftly to buffer themselves from potential supply chain disruptions and rising costs associated with looming trade restrictions. While this proactive strategy has temporarily strengthened economic indicators, economists warn it may also sow the seeds of future challenges, including inventory overhangs and inflationary pressures.
Surge in Business Activity and Inventories
The S&P Global Flash U.S. Composite PMI, which tracks the performance of both manufacturing and services sectors, climbed to 52.3 in May, up from 50.2 in April. This marks the most robust improvement in business conditions since mid-2022. A major driver of this growth has been the sharp uptick in manufacturing output and new orders, prompted by concerns over tariffs. Companies began stockpiling raw materials and components to mitigate risks ahead of the expiration of a 90-day tariff truce, set to end in July.
This stockpiling effort was reflected in a record-setting pace of inventory accumulation, the fastest in the 18-year history of the survey. It highlights the level of urgency and uncertainty among businesses trying to maintain continuity in production and pricing.
Inflationary Pressures Mount
Despite the positive momentum, the surge in activity has stoked inflationary pressures across multiple sectors. Prices for both goods and services increased significantly as suppliers passed on the higher costs of imported materials to customers. In the manufacturing sector, input costs rose at their steepest rate since August 2022. Meanwhile, service providers reported their fastest pace of cost inflation in nearly a year.
These rising costs present a challenge for the Federal Reserve, which has been cautiously monitoring inflation trends. Persistent price hikes may complicate the Fed’s ability to achieve a balanced monetary policy, especially if inflation outpaces wage growth and dampens consumer demand.
Impact on Retailers and Consumers
Retail giants such as Walmart and Target have also responded to tariff concerns by ramping up their imports and building inventory. This proactive approach has temporarily bolstered retail sales, with March figures showing a 1.4% rise attributed largely to consumer stockpiling in anticipation of higher prices.
However, experts caution that these gains may be short-lived. If tariffs are implemented or extended, import volumes could decline significantly in the second half of the year—by as much as 20%, according to some projections. This scenario could result in limited product availability and contribute to further price volatility. Conversely, if consumer demand slows, companies may find themselves saddled with excess inventory, putting pressure on profit margins and potentially triggering markdowns.
Broader Economic Implications
While the current uptick in business activity offers a temporary economic boost, it also introduces potential risks. A buildup of unsold inventory can weigh on future production levels and dampen broader economic momentum. Additionally, ongoing uncertainty surrounding trade policy may deter investment and complicate long-term strategic planning for businesses.
For consumers, rising prices driven by tariffs and supply constraints may reduce purchasing power and dampen sentiment. This dynamic underscores the complex and often contradictory impact of trade policy on domestic economic performance—highlighting the need for clear, coordinated decision-making at the federal level.
As policymakers, business leaders, and consumers navigate this uncertain terrain, the situation in May 2025 serves as a reminder of how closely intertwined global trade dynamics are with everyday economic realities in the United States.
